Consumers Will Continue to Buy Apple's Fashionable Gadgets

I haven't talked about Apple (NASDAQ:AAPL)
in a while. When last we left Apple, hand wringing over iPod sales this
or iPhones sales that, led to a tremendous selloff. I was commenting
how everyone is missing the forest for the trees - the real story of
these products is the halo effect of bringing customers to the bread
and butter of the company: the Mac. But then again I was shouting into
a stiff wind and the herd ran me over. They had no use for that logic.
But I still like this company as the de facto consumer entertainment
convergence play; although I needed to sell some to layer into
the demolished commodity space.

Why still like Apple
when the consumer is dying is one of my themes? Well, not every
consumer - especially the "snobbish" Apple consumer. The upper 10-15%
will still be fine... and for the other percentage of society? Well the last
things people will give up are video games (see Gamestop's latest results), fashionable gadgets, and $200 jeans for teenagers.
It would take a full out depression for teenagers to stop buying those
jeans - I still contend American parents would rather give their kids
money for expensive clothes than buy something for themselves - so they
will cut that last.

As customers retrench, spending on restaurants goes
down but things that help us cocoon or still have brand 'cache' will
hold up the best. And Apple is increasingly turning into an international story.... So it's not all blight out there - even from this corner of the blogosphere. Macs seem to be booming...

The report shows growth in Mac unit sales up 60 percent from 2007 and growth in dollar terms up 66 percent. That’s considerably higher than Pacific Crest’s estimate of 10 percent, according to the same report.

AppleInsider’s chart of the NPD data is pasted below the fold. It shows Apple’s share of the U.S. PC market growing from 9 percent in Feb. 2007 to 14 percent in Feb. 2008. In dollar terms, NPD has Apple capturing a full 25 percent of the U.S. computer market last month.

Meanwhile,
Piper Jaffray’s Gene Munster analyzed NPD’s February report on the iPod
line and projected sales between 9.7 and 10.5 million units for the
March quarter. The midpoint of those two figures would equal a 4
percent drop from 2007, considerably lower than the 2 percent gain on 10.8 million units that is the Street’s consensus.

Frankly,
a 14% market share (if accurate) would blow away all my assumptions - I
was hoping for something like that by end of 2009. (in dollar term, 25%
is even more impressive) But again, people seem fixated on these
periphery products - like the Walkman for Sony which created a buzz and
cache (in the 80s folks, I know Sony is not cool now), iPod
revolutionized Apple but to focus on iPod now as a growth driver is
misguided.

It will be a nice steady cash cow and keep driving people to
another cash cow, the iTunes website. Meanwhile, the growth in the Macs
is extraordinary if these numbers hold. And again, this is without the
enterprise market which is the last castle for Apple
to storm. Some of the recent updates to the iPhone are designed to help
Trojan Horse into the enterprise.... if that conversion from PCs to
Apples ever takes hold, it's going to be a massive upside.

But
I've been saying that for a long time, I said it in good times (for the
stock), I say it in bad times (for the stock) - the story remains the
same, but in the near term the herd has it's own ideas and drives the
stock where it wants to go (namely into purgatory of late). I still
think Apple is one of the few
true growth stories in tech, and at current valuation, is extremely
compelling. But until a lot of technical resistance overhead in the low
to mid $140s is taken care of, the stock will remain range bound.
But... I think this will be a very good performer in 2nd half 2008, all
things being relative (i.e. stock market not imploding another 20%).

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